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Monday, February 14, 2011

Inflation, Hyperinflation and Real Estate

Most people in the advanced economies—including most economists—really don’t have any idea what inflation and hyperinflation is. They don’t have a clue because they haven’t lived through it, or were children when it happened in the States and in Europe during the Seventies.

Wrong metaphor.

They think it’s nothing more complicated than a rise in prices that ripples through the economy—like a spectator in a football stadium who stands up, obliging the people sitting behind him to also stand up, so that they too can see the action on the pitch, which in turn forces the people behind them to stand up too, until finally, the whole stadium is up on its feet.

That’s what these people seem to think: Inflation—and the more severe hyperinflation—affects all goods and services and asset classes equally, in a rippling effect. Sort of like a rising tide.

5 comments:

country built on credit, runs on credit. not a good model as eventually falls flat. without the tarp and qe and more injections we'd of seen worse, but qe can't last forever, just as an economy based on consumption can't run forever. inflation with qe and eventually the wheels come off, collapse without qe..either way the wheels fall off although they've choosen qe and prolonged collapse for another day

as older person I remember patching jeans and home gardening and other such things...suppose it'll come to that for many. but what will become of use without retail sales going perpetually up, without a house as an atm, without weekly shopping to take the edge off, without tons of christmas and holiday gifts, when the cable tv has to be downsized. inflation an deflation can happen at the same time

PAY, PROFIT AND GROWTH, Part 8Gold and fiat currenciesBy Henry C K Liu This is the eighth article in a series.Part 1: Stagnant wages leading to overcapacityPart 2: Gold shows its true metalPart 3: Labor markets delinked from goldPart 4: Central banks and goldPart 5: Central banks and gold liquidityPart 6: The London gold marketPart 7: Political response to weak regulation The continuous upward trend in gold price in 2010 can be partially explained as a market response to post-crisis economic conditions created by reactively loose monetary policy developments and aggressive market intervening measures by both the central bank and the Treasury in the US. This approach was duplicated in varying degrees by many other governments in the Group of 20 (G-20). While both the Barack Obama administration and the supposedly independent Federal Reserve argue forcefully that quantitative easing was an unavoidable emergency measure to prevent a pending total meltdown of the financial market, the equally unavoidable consequent post-crisis stagflation for up to a decade is reluctantly acknowledged by all. Gold remains a safe-haven asset much sought after by investors in a market increasingly sensitive to deliberate and consequential fiat currency debasement by central banks through quantitative easing (QE), a term that describes the process of central bank injecting money into the market by buying debt from distressed financial institutions with money the central bank creates ex nihilo (out of nothing), resulting in an expansion of the central bank's balance sheet. This was evidenced by sustained net inflows of funds into all sorts of gold-based investment vehicles. “

Another easy to read ,educational backgrounder series of posts on the economic crisis and gold in the dollar hegemony system by H.K. Liu